Good Reads: So Western nations have failed to cut spending. What's next?

With a US Congress 'super committee' unable to cut spending and Britain's government also struggling, the West is looking like a wastrel; and Cairo's Tahrir Square seethes once more.

ByScott Baldauf, Staff writerNovember 22, 2011

US Senator John Kerry (D) of Massachusetts looks out a window before an interview about the 'super committee' near his office on Capitol Hill in Washington on Monday.

Jonathan Ernst/Reuters

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The front pages today appear to be full of failure: failure of the US Congress’s “super committee” to bring down spending in line with tax revenues; failure of Britain’s government to bring down its own rising levels of debt; and failure (thus far) of Egyptian protesters to push the country’s military from political control of the government.

Reading a story about failure requires a certain amount of masochism, unless one is looking for clues on how to learn from this failure and to improve. The articles in today's Good Reads push the news beyond failure and dole out golden nuggets of explanation and context to consider. So let’s learn, shall we?

In today’s New York Times, Binyamin Appelbaum and Annie Lowrey write about the likely economic consequences of Congress’s inability to come up with a compromise on spending cuts. Instead of finding a gentler way to reduce spending, Congress has essentially put the country into a form of receivership, where the law will now require equal cuts of new spending in both defense and domestic budgets.

Not only will this mean deep cuts in military programs and health care, but the Times' writers say it also “threatens to significantly slow growth in an already ailing economy by raising taxes on almost everyone while reducing government spending on almost everything.”

But, wait: Mr. Appelbaum and Ms. Lowrey find an economist who finds a lesson in all this.

“There could be a bit of a silver lining,” said Rosanne Altshuler, an economist at Rutgers University who served on President George W. Bush’s 2005 tax reform panel. “It forces us to come to terms with cuts in areas that have been difficult to touch — the military and Medicare. We may not like how the cuts are going to be done, but we better start dealing with the fact that cuts are going to have to be made.”

Although Republicans offered to raise taxes by $300 billion over the next decade, they insisted on conditions that all but guaranteed that the wealthy would not be hit hard. And Democrats refused to agree to deep cuts in spending on health care for the poor and the elderly unless the rich were forced to make greater sacrifices.

… borrowing in itself isn't necessarily good or bad. When used with moderation and for useful purposes, credit is actually a major fuel for economic growth. The word "leverage," employed by finance types as a synonym for debt, rightly implies a tool – a kind of force multiplier.

But when debts grow too large, the multiplying effects can turn negative. And the fallout can be stagnation that lasts for years. That's the risk facing the US and world economies today.

“Getting debt under control is proving harder than anyone envisaged,” he said. “High levels of public and private debt are proving to be a drag on growth, which in turn makes it more difficult to deal with those debts.”

With less money at their disposal, the economies of the US, Britain, and Europe will have less money for development aid and wars against terrorism, and there are those in the developing world who would argue that this is a good thing.